Retail Tenant Mix Tops Mixed-Use Agenda
The terms “experiential retail” and “mixed-use development” are both thrown around heavily in the context of 21st century commercial real estate.
As buzzwords for the changing landscape of retail real estate and encapsulations of the preferences of millennials, the terms are as popular in their usage as they are arbitrary in their application. Is an apartment building with a ground-floor restaurant or coffee shop really considered mixed-use? Is it actually legitimate to think of buying shoes or jewelry as an experience?
The answer varies depending on who’s asked. But the fact remains that dividing lines between certain property classes are beginning to blur.
Increasingly, office and multifamily projects are designed to include food, drink and entertainment options, which have become the only real common denominators among mixed-use projects. Given that those three facets of retail involve spending on one-time, consumable products and services, they have become the face of experiential shopping and spending.
Integrating retail development into mixed-use projects, as opposed to standalone shopping centers or pad sites, comes with its own unique challenges: parking, noise restrictions and sourcing contractors that specialize in build-outs for multiple property types, to name a few.
But developers realize that no matter how much office space or how many residential units a mixed-use project offers, the experiential success of the property is seized or missed at the retail level. As such, many developers of mixed-use properties in Texas consider nailing down the right retail tenant mix their No. 1 priority.
Though they vary by size and location, the projects spotlighted in this piece share the common thread of providing an open-ended experience, meaning their developers want people to feel comfortable showing up without a pre-set plan. They want customers to be able to improvise and make game-time decisions based on the variety of tenant options.
These projects are true mixed-use developments — properties offering hotels, medical facilities, hundreds of multifamily units and tens of thousands of square feet of office space, in addition to retail. Their unique and distinct approaches to brick-and-mortar retail represent the future of American shopping trends.
Backed by Berkshire Hathaway-owned Nebraska Furniture Mart, the 433-acre Grandscape development epitomizes the successful merging of economic and demographic factors with mixed-use real estate projects.
The northern outskirts of Dallas are exploding, with Plano emerging as a hub for corporate relocations and Frisco and McKinney both cracking the top five of the U.S. Census Bureau’s list of fastest-growing cities in 2017.
Grandscape’s nearby location in The Colony has been and will be instrumental to its success, according to Jeff Lind, president of Grandscape and chief strategy and development officer at Nebraska Furniture Mart.
“Grandscape is located in the heart of the fastest-growing pie slice in the DFW metro,” says Lind. “It’s a good regional location off Sam Rayburn Tollway and State Highway 121 with the Dallas North Tollway, a thoroughfare with tremendous
traffic, only a mile and a half away. It’s highly visible and accessible.”
Currently anchored by a 1.9 million-square-foot Nebraska Furniture Mart retail location and distribution center, Grandscape’s next phase of development will deliver a 100-acre lifestyle center. This phase will feature an undetermined amount of office, retail and restaurant space, anywhere between 500 and 700 multifamily units and at least one hotel.
Keeping plans flexible and open-ended is central to Grandscape’s operating philosophy, says Lind.
“Nothing is set in stone with this project, which isn’t about having a predetermined plan of how much of a certain product we want” he says. “Curating the tenants to fit together, attracting retailers that are first-to-market — if you can do this, you create a magnifying effect for the individual brands, as well as a one-of-a-kind project.”
Finding that ideal tenant mix requires a bit of unorthodox courtship of retailers, adds Lind.
“With standard retail developments, you go to a brokerage firm and say, ‘Here’s what we have in mind, go lease it out for us,’” he says. “We’re 180 degrees away from that. We’re really focused on talking owner-to-owner and doing it ourselves.”
Notable specifics for the lifestyle center phase of the project include a 300,000-square-foot Scheels sporting goods store, an 85,000-square-foot Galaxy Theaters and a 100,000-square-foot Andretti Indoor Karting and Games location.
Spanning six contiguous blocks on the fringe of downtown Austin, Plaza Saltillo’s location alone distinguishes it from other mixed-use properties with heavy retail components.
The developers of the project intend to transform a site that once housed a train depot into a 10-acre site with roughly 115,000 square feet of retail and restaurant space, 140,000 square feet of office space and 800 multifamily units.
“Even though it’s being built new, we want it to feel like the street has evolved over time and has its own character,” says Jason Thumlert, principal at Endeavor Real Estate Group, the project’s main developer. “We’ve pushed for a sizable amount of retail because it’s the face of the project.”
Part of the project involves extending the nearby Lance Armstrong Bikeway to provide pedestrian- and bike-only passage through the property. In addition, Capital Metro, Austin’s public transit provider, has realigned the train tracks from the center of the development to its edge to facilitate rail travel in and out of Plaza Saltillo.
Thumlert notes that in true mixed-use developments, most interaction between customers and the property comes at the retail level. Thus, Endeavor is actively seeking a certain kind of tenant for Plaza Saltillo.
“We want that retailer that’s online-only in Austin and looking for its first brick-and-mortar destination,” says Thumlert.
“We want to be a springboard for new, local retailers. But at the same time, we want to be flexible in finding our tenant mix. Flexibility is key to executing a retail component within a mixed-use project.”
To woo local startup retailers, Endeavor Real Estate Group will integrate murals and sculptures by Austin artists and encourage tenant-designed storefronts and signage at Plaza Saltillo.
“We all know that retail now is about creating an experience,” says Thumlert. “But we’re coming into a neighborhood that already has an experience. So we’re trying to fold into that existing fabric and add something to it.”
Plaza Saltillo is currently slated for a first-quarter 2019 delivery.
Essex Modern City
In the words of its developers, Essex Modern City, an eight-acre development in San Antonio’s Denver Heights neighborhood, is “a social experiment that believes good design and technology can create a more enriching lifestyle.”
Scheduled to break ground in March 2018, Phase I of Essex Modern City will deliver 87,000 square feet of retail space, 80,000 square feet of office space and about 500 residential units. The developers aim to shrink the disconnect between retail and other property types by encouraging actual interaction between retailers, residents and office workers.
“We want a community where on Sunday night, residents can come down to the bar and watch Game of Thrones and get to know each other,” says Jake Harris, co-founder of California-based Harris Bay, which is developing the project along with San Antonio-based Varga Endeavors LLC. “Essex Modern City goes beyond the changing nuances of retail. It’s about living in a community with more connection, which is something that resonates with all of us.”
To find a tenant mix that enables this interaction, the project’s developers are, in part, targeting micro retailers — small-footprint operators who sign short-term leases in smaller areas. The property will feature a distillery and a 22,000-
square-foot open marketplace with food trucks to facilitate this goal.
In addition, the developers are curating a vertical farming system to help provide food for their restaurant tenants. The integration of the current farming methods into the project’s restaurants is a testament to the developers’ goal of using technology to drive the experience factor.
“We’re not feeding everyone in Denver Heights,” says Harris. “But we’re moving in the direction of sustainable urban development. We’re looking for technology to enhance that human experience in Essex Modern City and to add more life to living.”
Valley Ranch Town Center
Valley Ranch Town Center, located about 25 miles northeast of downtown Houston, opened its first retail phase in fall 2016 following the completion of Grand Parkway near Interstate 69. Phase II of the 240-acre development will deliver approximately 500,000 square feet of retail space that will be anchored by the likes of T.J. Maxx, Ross Dress for Less, Burlington, PetSmart and Ulta Beauty.
With the next round of stores slated to open in September, Phase II of Valley Ranch Town Center is significantly ahead of schedule. But according to Danny Signorelli, the property’s developer and CEO of Signorelli Co., that’s not what makes this leg of the project special.
“Phase II will deliver a plaza and pedestrian corridor that connects the power center components to the entertainment
components — the football stadium, ball field and amphitheater,” says Signorelli. “It’s a neat twist that isn’t typical for a power center.”
Bridging the gap between shopping and entertainment is nothing new for Signorelli, who pushed for Little League fields in his project years ago when it was little more than a 120-acre parcel. Today, the mixed-use development that is Valley Ranch spans more than 1,400 acres, with approximately 900 multifamily units and 120,000 square feet of office space currently available for lease.
The tenant mix at Valley Ranch Town Center plays into the sense of community that Signorelli seeks to convey. Academy Sports + Outdoors, one of the property’s anchor tenants, has seen increased sales from the post-Friday Night Lights foot traffic coming from the football stadium. Customers shopping at the development’s Sam’s Club location are treated to views of lakes, fountains and water features. Walking trails connect restaurants to each other and to the entertainment district.
“The civic components are significant drivers and long-term staples that facilitate the success of all our tenants,” says Signorelli. “We’re creating something unique to the retail world, but we’re not just focused on retail. All the components tie together and that’s the wave of the future.”
All told, Valley Ranch Town Center will feature approximately 600,000 square feet of retail space.